Over the last 30 years, tuition and fees for colleges and universities have soared for a variety of reasons, from state funding cuts to increased construction and facility costs. In 2022-23, average estimated budgets (tuition and fees; room and board; and allowances for books, supplies, transportation, and other personal expenses) for full-time undergraduate students ranged from $19,230 for public two-year in-district students and $27,940 for public four-year in-state students, to $45,240 for public four-year out-of-state students and $57,570 for private nonprofit four-year students.1
As a result of these increases, many students have had to take out student loans to pay for their education. About two-thirds of bachelor’s degree recipients have borrowed money to attend a college or university, and the total amount they have borrowed accounts for 92.6% of student loan debt.2
Take a look at these staggering student loan debt statistics:
- 43.8 million borrowers have federal student loan debt; $37,338 is the average federal student loan debt balance.
- $31,401 is the average amount public university students borrow to attain a bachelor’s degree.
- $35,983 is the average amount private, nonprofit university attendees borrow.
- $42,551 is the average amount private, for-profit students borrow.
- 53.0% of federal student loan debt is in Stafford loans.
- 34.3% of federal student loan debt is in direct consolidated loans.
- 30% of undergraduate students have federal student loans.
- 66% of graduate students have federal student loans.
Saving for a college education: a great long-term investment
Even though the costs of college continue to go up and many people incur significant student loan debt, earning a college degree truly pays off in the long run, so it’s worth finding ways to save for college, including investing in a 529 college savings plan.
To further put things into perspective, the earnings gap between college graduates and those with less education continues to widen. Those who obtain a four-year degree will earn an average of $2.3 million in their lifetime—84% more than those with only a high school diploma.3 Millennials with just a high school diploma earn only 62% of what the typical college graduate earns.3 College graduates earn an average of $78,000 yearly, while those with just a high school diploma earn an average of $45,000 yearly. That’s an average annual wage premium of $33,000.3
Student loan debt statistics for 2023 show that 43.5 million borrowers collectively have $1.75 trillion in student loan debt in the United States, and student loan debt makes up the second largest amount of debt in the nation behind mortgages.
How to pay off student loans
Whether you’re paying off student loans now, you’re thinking about taking out a loan for college, or you’re a parent getting ready to send your child to college, here are several strategies that could help mitigate the impact college debt has on meeting your long-term financial goals.
1. Enroll in the extended student loan repayment plan
If you have federal student loans, you can enroll in the Extended Student Loan Repayment Plan. Under this plan, you could extend your student loan repayment period from the standard 10 years to 25 years. This would lower your monthly student loan payments, but it would also result in higher total interest payments over the life of your student loan. You’ll need to have at least $30,000 of Direct or Federal Family Education Loan Program (FFELP) loans to qualify.
2. Make additional payments
Make larger payments—if you can afford to do so—to cut the principal quickly and shorten your payoff time. Reducing the principal balance can help you minimize the duration of the loan and reduce the interest you’ll have to pay.
3. Reduce your interest rates through discounts
Most student loan lenders offer an interest rate discount if you set up automatic payments on your loan. The discount is usually around 0.25 percent, and some lenders go as high as 0.50 percent. While this may seem insignificant, it could knock off a significant chunk of interest over your loan’s life.
Private student loan lenders may also offer interest rate discounts if you meet certain criteria. Check with your lender and ask if any other interest rate discounts or reductions are available. Some lenders are even willing to reduce your interest rate if you have a high credit score or make a certain amount of payments on time.
4. Consider refinancing
If you can obtain a lower interest rate, that would help you pay off your student loans faster. Bear in mind, though, that if you refinance you may lose access to certain benefits, like student loan forgiveness programs and income-drive repayment plans.
5. Consolidate your student loans
The advantage of direct loan consolidation is that your federal student loans are combined into one single federal student loan, so you will have one monthly payment and one interest rate. You’ll also be able to extend the repayment period. Extending your repayment period can reduce your payments each month, but you will pay more interest over time.
6. Take advantage of tax deductions
You can take the student loan interest deduction on your taxes for the interest you paid during the year on qualified loans. You’re allowed to deduct up to $2,500, depending on your adjusted gross income. The deduction is available for both federal and private loans.
7. See if you qualify for student loan forgiveness
There are several student loan forgiveness programs that can eliminate all or part of your debt. These programs include President Biden’s Student Loan Forgiveness Plan, as well as Public Service Loan Forgiveness, Teacher Loan Forgiveness, and Income-driven Repayment Forgiveness. Each plan has specific requirements and strict approval policies. Thoroughly research each plan to see if you qualify.
8. Employer repayment assistance programs
Many employers offer student loan repayment assistance or tuition reimbursement programs, which allow them to contribute up to $5,250 annually toward an employee’s college tuition or student loan repayment assistance through 2025. The added benefit to the employee is that it’s considered nontaxable income. These employer repayment assistance programs implement 5 U.S. Code 5379, which authorizes companies to set up their own student loan repayment programs to help borrowers repay federally insured student loans as a recruitment or retention incentive to attract or retain highly qualified employees.4 There are also loan repayment support programs available for nurses, teachers, and members of the military. Speak with your HR department to find out what programs are available at your company.
9. Borrow from life insurance to pay off debt
If you pass away and you still have a student loan balance, federal student loans will be forgiven. But your family will be responsible for paying back any nonfederal student loans. To avoid passing on this financial burden to your family, you may want to consider a life insurance policy. If you’re single, it could cover any debts you leave behind, and if you have a family, it will also protect your family’s lifestyle. Additionally, a whole life insurance policy can offer some ways to supplement what parents save for college. It’s important to keep in mind that taking out a policy loan to help pay off student debt would reduce the available cash surrender value and death benefit of the policy. Policy loans will also involve interest payments.
Working with a New York Life financial professional is a good way to start exploring different strategies for achieving your future goals while protecting those you love.
Frequently asked questions